Can New Jersey Cap Hypocrisy on Taxes?


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New Jersey Republican Governor Chris Christie’s proposed constitutional amendment capping property tax growth at 2.5% is as misguided as it is hypocritical.  The plan comes on the heels of Christie’s suspension of property tax relief for homeowners with incomes less than $70,000 and for 600,000 senior citizens. It also follows more than $800 million in cuts in state aid to local governments. The proposed property tax cap would do more damage to local governments’ ability to provide basic services like public safety and education.

The Governor's Proposed Cap on Property Tax Increases
    
While still in the process of wreaking havoc on the New Jersey budget, Christie is proposing a constitutional amendment that would create a 2.5% cap on the increase in the property tax levied by municipalities, school districts and counties, as well as a 2.5% cap on spending for state programs. After approval by the legislature, the proposal would have to be approved in a ballot referendum in November.

The proposal would allow an increase beyond the 2.5% cap only if the resulting revenue was used on debt service payments or approved by local referendum. Christie's proposed property tax cap would replace an existing 4% cap, which includes several additional exceptions.

If Christie’s goal was truly to hold down property taxes for typical New Jersey residents, he would not have vetoed the continuation of a 2% millionaire surtax. The revenue from that tax would have funded the restoration of $635 million in property tax rebates for more than 600,000 seniors and people with disabilities. The veto, which Democrats failed to override this week, suggests that Christie is more concerned with providing tax breaks for the wealthy than providing property tax relief for those who need it most.

Making matters worse, Christie's budget cuts over $800 million in state aid to local governments. The cuts will force local governments who depend primarily on property taxes to raise even more revenue to close the gap created by the cuts.

A Democratic Alternative
    
Signaling some willingness to compromise, Democratic Senate President Stephen Sweeney has proposed a 2.9% cap coupled with a continuation of existing exceptions to the cap. Defending his proposal, Sweeney points out that the existing 4% cap has already worked and has reduced average annual property tax increases from 7% to 3.3%.

Sweeney's measure is also different from the Governor's in that it would be a statute rather than a constitutional amendment, meaning the state legislature would decide on the policy change rather than voters this November.   

Bogus Research Fails to Make Poorly Targeted Tax Break Look Like Good Policy

Christie claims that the property tax cap will force local governments to become more efficient by consolidating and working out shared service agreements. This logic was bolstered by a Manhattan Institute report, which argued that the measure on which the New Jersey law is based was a success in Massachusetts.

The Center on Budget and Policy Priorities (CBPP) has since thoroughly debunked the Manhattan Institute report by outlining its many absurdities, like its implication educational spending and test score differences are explained by property tax caps and not just with specific state policies. Another recent report by CBPP explains that the Massachusetts tax reform model Christie is hoping to follow is already causing dramatic inequalities between districts, placing an unfair tax burden on low- and middle-income families, and debilitating local government services.

The inherent problem with hard property tax caps is that they have proven time and again to be poorly targeted and have severely limited the ability of local governments to meet the basic needs of local residents. If Christie’s goal is to force local governments to consolidate and become more efficient, he could work directly toward this goal rather than relying on rigid property tax caps to bankrupt localities into cooperation. In addition, if his goal is to provide property tax relief, he could provide more of precisely the targeted tax relief that his budget eliminates.

Some Bad Ideas Are Contagious

Unfortunately, New Jersey is not the only state debating a new property tax cap. New York Governor Patterson is also floating a property tax cap of his own, although it would exclude school property taxes.

The time for the New Jersey property tax cap debate is quickly ticking away as the measure must be approved by July 7th for it to be on to the ballot in November. Complicating matters further for Christie, the proposal must also garner the support of a significant number of Democrats as the measure requires a three fifths majority in the Democrat-dominated state legislature. With Democratic support leaning toward Sweeney’s proposal and Christie’s rejection of it, the debate over the proposal will certainly intensify. Hopefully, the Democratic majority will hold strong and block the Governor's proposal.

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